Buyer Investigations and Requests for Repairs: What, How, and When?

14 Jun

If you’re a buyer, or thinking about becoming one, you are no doubt aware that you are allowed the opportunity to inspect the property after the seller has accepted your offer.  The “inspection” is actually a multi-step process that should include many different aspects of the property and its surroundings.

In California, the standard Residential Purchase Agreement includes the following clause:

Unless otherwise agreed: (i) the Property is sold (a) in its PRESENT physical (“as-is”) condition as of the date of Acceptance and (b) subject to Buyer’s Investigation rights; (ii) the Property, including pool, spa, landscaping and grounds, is to be maintained in substantially the same condition as on the date of Acceptance; and (iii) all debris and personal property not included in the sale shall be removed by Seller by Close of Escrow.

 A.  Seller shall, within the time specified in paragraph 14A, DISCLOSE KNOWN MATERIAL FACTS AND DEFECTS affecting the Property, including known insurance claims within the past five years, and make any and all other disclosures required by law.

 B.  Buyer has the right to inspect the Property and, as specified in paragraph 14B, based upon information discovered in those inspections: (i) cancel this Agreement; or (ii) request that Seller make Repairs or take other action.

 C.  Buyer is strongly advised to conduct investigations of the entire Property in order to determine its present condition.  Seller may not be aware of all defects affecting the Property or other factors that Buyer considers important.  Property improvements may not be built according to code, in compliance with current Law, or have had permits issued.

One important point, as a prelude to our discussion about buyer investigations, is to note that the property will be transferred to the buyer in as-is condition.  When making an offer, your price should reflect the condition of the property as you see it, with the expectation that it will be delivered to you in that same condition (with all personal property will be removed from the premises).

However, the “as-is” clause does not excuse the seller from informing the buyer of any relevant, known material facts that might affect the value, desirability, or usability of the property.  This is well established law, and the seller is expected to inform the buyer of anything the seller either knows or “should have known” about the property. (I will note that sellers of foreclosed properties are generally exempt from this requirement on the grounds that the seller is likely to have never seen the property, and certainly has never lived in it.) But, as noted in the clause above, the buyer should never rely on the seller to know the condition of every part of the structure, nor should the buyer expect the seller to know what things might be of importance to you.

In addition, both the listing agent and the buyer’s agent are required to do a visual inspection of the property.  The agents’ inspections should not be relied upon beyond what is visibly evident, though; their disclosures will not reflect things that require climbing into attics, moving furniture, lifting rugs, etc. (There are reasons for that which I won’t get into at this time.) So there are plenty of things that you, as the buyer, will need to consider as you plan your own inspections and investigations.

What Does the Buyer Investigation Include?

The simple answer:  Anything and everything you personally feel is important.

The Residential Purchase agreement form offers some important things to investigate.  Specifically, the buyer has the right to inspector for lead-based paint and other lead-based paint hazards; inspect for wood destroying pests and organisms; review the registered sex offender database; confirm the insurability of the buyer and the property; and to satisfy him or herself as to any matter specified in the Buyer’s Inspection Advisory form (which lists quite a few other factors to consider).  However, unless the seller agrees, the buyer is notpermitted to do any invasive or destructive investigations (sorry, you cannot remove the hardwood floor to look at the concrete slab underneath), nor can you bring in a building code/zoning inspector or any other government employee unless required by law (some cities, such as Pasadena, do require inspections prior to close of escrow).  The contract is not written with the intent of the above being an exhaustive list, nor do I mean to suggest buyers should not give consideration to other factors.

Geologic evaluations may be useful for homes built above, on, or below steep hillsides.

Geologic evaluations may be useful for homes built above, on, or below steep hillsides.

Obviously, an inspection by a qualified home inspector is very important, and I will always strongly recommend this be done.  A good inspector will look at all of the home’s major systems.  This normally includes evaluating the electrical system (including major appliances such as the furnace, pool pump, etc.), looking at the condition of the roof and foundation, making sure doors and windows function properly, and so forth.  A thorough inspection can take up to several hours, depending on the size and layout of the house.

The home inspector’s report is generally many pages long.  Normally you will see a summary of items (sorted by major issues, more minor issues, and other notes/comments), followed by a detailed list of each item evaluated in each part of the property.  You should read this report in its entirety.

Your inspector, or your agent, may recommend other professionals evaluate the house.  If water is slow to drain throughout the house, or there are signs of leaks, a plumber may be needed. (I always recommend having a plumber send a camera into the sewer line to check for any impending—and costly—sewer issues, even if no obvious sewer problems are evident.) Perhaps an electrician, or mold remediation company, or tree surgeon, or even a structural engineer, might need to be called in depending on the property conditions.

Depending on the terms of the contract, the buyer may also be responsible for termite inspections (though, at least locally, it’s more typical that the seller will arrange this part).

If you are planning on remodeling or renovating, the buyer’s inspection period is also a good opportunity to bring in contractors to give written estimates as part of the inspection period.  This allows you the option of backing out of the contract without penalty if the remodeling project will be more costly than anticipated or even impossible to do.

You, as a buyer, should also “investigate” the property by looking around at the neighborhood.  Walk around and see what other types of buildings are nearby that might affect your enjoyment of the property.  Is there a school playground across the street?  That might be great if you have school-age children, but maybe not so much if you work from home and prefer not to be disturbed by daytime noise.  Are there business nearby that might produce early-morning truck noise?  Also, chances are you have seen the property during the day, so try to see the house and the general area at different times and days.  Drive through the neighborhood on a Saturday night to see if the neighbors are inclined to have loud parties (or, perhaps, you might notice that the street light shines right into the upstairs bedroom).  Is the house down the street from a church?  Drive by on a Sunday morning to see what the parking situation is like.  Remember that only you know what is most important to you.

OK, So Then What?

So now that you’ve done your buyer’s investigation, what next?  Well, if you are satisfied with everything exactly as is, then you’re done.  Your agent will provide you with a Contingency Release form for your signature, and he or she will submit that to the seller, who will no doubt be very pleased.

If your inspection uncovered something that concerns you, you can either cancel the contract or request that the seller take some sort of corrective action (provided that you are still within the inspection period specified in your contract).  Keep in mind that the seller is not required to agree to any repairs.  In California, the seller isn’t even required to respond to your request at all (though I advise my own sellers to at least respond, even if the response is to reject the request entirely).

What Repairs Should I Request, and When When Do I Ask for Them?

Sellers may reject requests for correction of obvious defects, such as this damaged floor.

Sellers may reject requests for correction of obvious defects, such as this damaged floor.

Well, as a buyer, you can ask for anything and everything if you so choose.  But, in my opinion, the timing and the type of repair is important.  There are really two opportunities to submit a request for repairs, and in my opinion those opportunities are best approached somewhat differently.

The first opportunity comes at the time of initial negotiations, when you are submitting your offer.  If you want the seller to repair issues (cosmetic or otherwise) that would be obvious to anyone walking into the house, this is the best time to submit them.  For example, if there is an obvious active water leak or the garage door is visibly damaged, I normally recommend including this in the purchase offer because a reasonable person would immediately notice these things.  However, keep in mind that the seller will balance the cost and inconvenience of doing those repairs against the price you are offering.  Also, the seller may have adjusted his or her original asking price downward to reflect the present conditions.

Your second opportunity to request repairs comes after you have done your own investigations into the condition of the property.  In all likelihood, your inspector(s) will have given you a laundry list of things that are “wrong” with the house.  This might include substandard wiring, or nonfunctioning appliances, or an aging roof.  Again, you can request any repairs you want.  However, the longer your list of requested repairs is, the more resistant the seller will probably be to making any of those repairs.  Remember, for example, that the wiring was probably up to code when the house was built, and the fact that it is not compliant with current building codes does not necessarily mean the seller should be held responsible for updating the electrical system now.

So, at this point, obvious issues that you knew about when you submitted the offer are most likely to be rejected.  Minor issues that will not affect the safety or utility of the house (e.g., a broken light fixture or a window that is stuck shut) are probably not going to be accepted either.  I would suggest prioritizing your requests and focusing more on things that fall into the following items:

Health and safety issues:  Many sellers hate the thought of something terrible happening to the buyers as soon as they have moved in.  Serious mold issues, water leaks, immediate fire hazards, major vermin issues, or structural problems are the sort of thing you want to worry about most.

Costly issues previously not known:  If it turns out that the sewer line needs replacement, you can expect to pay several thousand dollars for the repair.  Many buyers are not going to be in a financial position to immediately make those repairs.  The seller (especially if it’s a distressed property or a short sale) may not be able to make those repairs either, but it might be possible to negotiate a partial credit to defray some of the costs.

 

This kitchen would require installation of a stove to qualify for FHA financing.

This kitchen would require installation of a stove to qualify for FHA financing.

Financing issues:  Buyers who are financing through loan programs (such as FHA) that require properties to meet certain minimum physical standards may find themselves in a position where, in order to close escrow, some repairs may need to be made.  This could be correcting peeling paint, repairing a broken window, or replacing a malfunctioning stove.  While these are not directly related to the buyer’s investigation per se since they are part of the lender’s appraisal, these are often known by the time the buyer’s inspections are completed.  If the buyer’s ability to close escrow is contingent upon correcting these issues, the seller is often quite motivated to accommodate these repairs if the cost is not too outrageous.

Bear in mind, of course, that these are very general guidelines; each property and each transaction will be different.  One must keep in mind the nature of the seller and the contract itself; many contracts, especially those for foreclosed properties, very clearly state that the property is being sold “as is,” with the seller unwilling to make any repairs whatsoever.

Remember that the goal of all parties in any real estate transaction is to make the sale happen.  Any negotiations should be handled reasonably, with that goal firmly in mind.  Your agent can help you come to a decision about how to handle any inspection and repair issues.

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